City aid to schools will fail, Neall says

Baltimore City Council members (right) are briefed by representatives of Mayor Martin O'Malley about his proposal to bail out the Baltimore school system using money from the rainy-day fund.

Baltimore City Council members (right) are briefed by representatives of Mayor Martin O'Malley about his proposal to bail out the Baltimore school system using money from the rainy-day fund. (Sun photo by Gene Sweeney Jr.)

Tanika WhiteSun Staff

As officials at City Hall detailed their plan to save Baltimore's financially strapped schools yesterday, the system's former financial adviser, Robert R. Neall, was predicting in Annapolis that the deal is doomed to fail and the state will eventually have to provide aid.

"Everybody understands this is a difficult situation and we're managing it," Kearney said.

School system spokeswoman Edie House said top school officials would not comment on Neall's letter because it was not addressed to them.

But school board member Ralph Tyler said the nine-member board is determined to make the city plan work, despite nay-sayers.

"Going back several weeks, we know that Senator Neall is prone to extraordinary exaggeration," Tyler said. "I think that lots of people - starting with the mayor and the school board - are totally committed to making this effort successful."

At a briefing last night, City Council members tried to assert some influence over the mayor's plan, which is to come before the Board of Estimates today.

Council President Sheila Dixon said she would propose an amendment giving the council a representative on the fiscal oversight committee the mayor wants to appoint. She also suggested that Comptroller Joan M. Pratt have a representative.

Council members did not discuss Neall's letter.

Reached on his cell phone yesterday, Neall was surprised that his personal letter had reached the public. But he said he still is concerned about the city schools.

"My only agenda was to help this very troubled organization with its financial problems," he said. He added that it was "my duty" to notify the state officials of the severity of the problems.

Neall said he wrote and mailed the letter last week, after O'Malley unveiled the outlines of a surprise city proposal to provide a loan to the schools. In exchange for funding, the city would have more control over school system operations.

That proposal replaced a state plan that would have done virtually the same thing.

Neall's three-page letter was stamped as being delivered in Annapolis on Monday. In it, he asks top state officials to devise their own backup plan to help the city schools "when (not if) this issue lands in your respective in-boxes."

After reading Neall's letter, Miller said the schools situation needs to be monitored by the state. But he said it is officially the city's problem.

"I'm confident the mayor would not have taken this step if he did not feel he could get the parties to make major sacrifices," Miller said. "[O'Malley] knows the pitfalls involved. I salute him for making a bold decision."

This week, Baltimore school board members voted to accept O'Malley's plan, giving them a $42 million loan from the city's rainy day fund and ceding to the city some oversight of the system's financial matters.

The agreement will put in place a three-member fiscal oversight committee and require school officials to come up with a recovery plan. It involves budget-cutting - including possible layoffs - this year and next.

Schools chief Bonnie S. Copeland said at last night's City Council hearing that school officials will consider next week laying off some part-time workers.

Neall is skeptical that the city's rescue plan will help, particularly because $34 million of the city's loan will have to be repaid by August.

"Please understand that a $42 million loan to the system which requires repayment in ninety days does nothing to solve the system's manifold fiscal problems," Neall wrote. "In fact, such a loan will more likely cause more harm than good."

In the phone interview, Neall said that the school system - which is facing a $58 million deficit - will have to regularly deal with severe cash shortages after paying back the $34 million.

"There will be very serious cash flow choke points very soon thereafter, which again gets the school system into this financial death spiral," Neall said. "July and August are light payroll months, but then you go right into your heavy payroll period. That's the time of the school year when you want to go into it with your fuel tanks full, not empty."

School officials believe the system will be able to manage the cash flow problems.

School system Chief Financial Officer Rose Piedmont, however, agreed that the cash shortages - beginning this fall - will be far greater under the city's repayment plan than if the system had a longer payback period.

In his letter, Neall said he is "deeply troubled" that he and the state were unable to craft a solution for the schools and "not optimistic that the current arrangement [with the city] will produce a successful result."

School board member Tyler dismissed Neall's concerns: "The success of this effort never depended on Senator Neall."

At one time, both state and city leaders had hailed the former state senator as one of Maryland's top fiscal minds. When he agreed to volunteer as the school system's chief financial adviser in the fall, top officials predicted a certain end to the schools' problems.

Many state and city leaders blamed the school board when Neall abruptly resigned, saying he was frustrated that the board had failed to cut costs as steeply and quickly as necessary.

In his letter, Neall said the school system still does not have the appropriate fiscal controls to see its way out of the financial emergency, even with the city's attempts to help.

Neall predicts in the letter that the city school system will reach a "point of no return" by this summer, when the General Assembly is between sessions.

If that happens, he said, the ramifications could be critical.

"As we all know, there are no statutes to deal with an emergency of this type," he wrote. "I can only say that if such a situation were to occur this summer, the financial remedy would be much more expensive, the range of options much more narrow and the time constraints much more difficult."

Sun staff writers David Nitkin and Laura Vozzella contributed to this article.